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TMI Blog2016 (6) TMI 1393X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year. In the circumstances, therefore, we see no reason to interfere with the conclusions reached by the CIT(A) There is no difference pointed out by the Revenue, we are of the opinion that the CIT(A) has rightly deleted the addition under the head unearned income . The mere submission on the part of Revenue that the same has not attained finality is no ground in itself for not placing reliance upon the same. Accordingly, the findings of the CIT(A) are upheld and the ground is decided against the Revenue. TDS u/s 195 - expenditure incurred on networking - remittance towards overseas services - assessee explained the networking and communication cost and the category of expenditure incurred outside India and the said provisions shall not apply - AO relied on the legal provisions of Sec. 40(a) (i) of the Act and double taxation u/s.90(2) of the Act considered the provisions of TDS are mandatory in respect of networking, communication were services are outside India - HELD THAT:- As decided in own case [ 2012 (11) TMI 1151 - ITAT CHENNAI] payments made for connectivity for transmission of data would not fall into the category royalty or fees for technical - there is no iota of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Considering the jurisdictional High Court decision, we uphold the order of Commissioner of Income Tax (Appeals) and allow the expenditure. The ground of the Revenue is dismissed. Disallowance of depreciation on good will - assessee claimed depreciation on the goodwill @25% under the block of assets - HELD THAT:- The goodwill takes the characteristic of separate block and assessee has paid the money over and above the value of the assets to the seller and such excess amount is the goodwill classified and falls within the explanation of Sec. 32(1)(ii) of the Act. The Hon ble Apex Court in the case of CIT vs. SMIFS Securities Ltd [ 2012 (8) TMI 713 - SUPREME COURT] has held that principle of ejusdem generis would strictly apply while interpreting said expression which finds place in Explanation 3(b). Goodwill is an asset under Explanation 3(b) to Sec. 32(1) of the Act and dismissed the appeal . We, respectfully following the Apex Court decision, upheld the order of Commissioner of Income Tax (Appeals) and dismiss the ground of the Revenue. Profit on IP/VPN Business sold to Sify Communications Ltd (SCL) - business income OR long term capital gains on slump sale - HELD THAT:- We on p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89 ITR 167), the learned CIT(A) ought to have upheld the action of the assessing officer. 3.1. The learned CIT(A) erred in deleting the addition made u/s.40(a)(i) of ₹ 16,22,09,000/-, towards 'networking and communication costs', relying upon his own order in the assessee's case for the a-y 2003-04 in ITA Tr.No.4/09-10/LTU(A) dated 11.12.2009. 3.2. It is submitted appeal before the Hon'ble Chennai Tribunal has been preferred against the relied upon order. 4.1. The learned CIT(A) erred in deleting the disallowance of 'recruitment expenses' (₹ 29,38,000) and 'other expenses' to the tune of ₹ 1,64,53,286/- by holding that the impugned expenses were incurred by the assessee for carrying on business in Australia and consequently do not involve any exposure to tax in India. 4.2. The learned CIT(A) failed to appreciate that Article 7 (Business Profits) of the DTAA between India and Australia reads thus: "(1) The profits of an enterprise of one of the Contracting States shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions, reasons, grounds argued by the assessee and relied on the assessee's own case for the assessment year 2005-06 and deleted the addition made by the ld. Assessing Officer. Aggrieved by the order of Commissioner of Income Tax (Appeals), the Revenue has assailed an appeal before Tribunal. 6. Before us, the ld. Departmental Representative argued that he Commissioner of Income Tax (Appeals) erred in deleting the addition relying on subsequent year order and has not become final and appeal has been preferred in jurisdictional Tribunal, pending disposal and prayed for allowing the appeal. 7. Contra, ld. Authorised Representative relied on the orders of Commissioner of Income Tax (Appeals) and also supported the case with decision of Co-ordinate Bench in assessee's own case for the assessment year 2002-03 and opposed the grounds. 8. We heard the rival submissions and perused the material on record and judicial decisions cited. The ld. Authorised Representative contention that unearned income as per sec. 145(2) in respect of any class of income to be disclosed and notified in the Central Government by Official Gazette. We have considered the submissions of the ld. Authorised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceeding that in the balance sheet as on 31.03.2003 ₹ 45,67,354 was shown as 'unearned income' under the head 'current liabilities' as against ₹ 15,13,162 shown as on 31.03.2002. The details furnished by the assessee showed that ₹ 39,68,208 received during the year ending 31.03.2003 was not offered for tax and was carried forward to next year. The assessee explained as under. "For revenue relating to development of elearning software. The invoices are raised on the basis of payment milestones where as revenue are recognized on the basis of the modules developed and delivered. Though the payments has been received on the basis of invoices, if the products are not delivered sify e-learning needs to refund the amount in full to the customer." 32. The AO rejected the explanation and added ₹ 39,68,208 for the reasons given in his order as under: "4. The system of accounting followed by the assessee was mercantile. In such method of accounting the receipt on sale needs to be re recognized once an sales invoice was raised. Once a customer is billed, there can be no other treatment except to recognize the sale in the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carried forward and was duly taken into account in the next assessment year. In the circumstances, therefore, we see no reason to interfere with the conclusions reached by the CIT(A). The ground no. 4 is, accordingly rejected. 36. In the result, the appeal filed by the department is dismissed''. Taking cue from the same and more particularly, in view of the fact that there is no difference pointed out by the Revenue, we are of the opinion that the CIT(A) has rightly deleted the addition under the head "unearned income". The mere submission on the part of Revenue that the same has not attained finality is no ground in itself for not placing reliance upon the same. Accordingly, the findings of the CIT(A) are upheld and the ground is decided against the Revenue. We respectfully following the above decision, upheld the order of the Commissioner of Income Tax (Appeals) and dismiss the Revenue ground. 9. On the second issue, the ld. Assessing Officer on perusal of the expenditure incurred on networking called for clarification as the expenses are subjected to TDS u/s.40(a)(i) of the Act and applicability of provisions of Sec. 195 of the Act. The assessee gave detailed cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the service providers in India does not arise. I have held in my order for the A.Y. 2003·04 in ITA TR. No. 4/09·10/L TU(A) that such connectivity services availed would not result in accrual of any royalty or technical services in India under Sec 9 (1) (vi) and 9(i)(vii) of the Income tax Act 1961. Following the same reasons, I hold that the services are not liable to tax in India and hence the question of deduction of tax at source on the same does not arise. The disallowance u/s 40(a)(i) is therefore deleted. The appellant succeeds on this ground''. Aggrieved by the Commissioner of Income Tax (Appeals) order, the Revenue has assailed an appeal before Tribunal. 11. Before us, ld. Departmental Representative argued that expenditure incurred by the assessee towards assessee''s overseas payment is subjected to TDS and ld. Commissioner of Income Tax (Appeals) relied on the decision which are yet to become and prayed for allowing the appeal. 12. Contra, ld. Authorised Representative relied on the orders of Commissioner of Income Tax (Appeals) and also supported the case with decision of Co-ordinate in assessee's own case for the assessment year 2002-03 and opp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following arguments for raising the impugned demands. (1) The service provided by the Telecommunication service Provider in the case is different from that provided by the nonresident companies in the present case. (2) Telephone is fundamentally different from a bandwidth service. (3) The bandwidth service is not a specified service. (4) Equipment of the nonresident company through which connectivity is provided is used by the assessee the requisite bandwidth along with equipments is for exclusive for the assessee which cannot be used by others nor by the non-resident company; on termination of the agreement the assessee must cease to use the service and all equipment of the nonresident company. Thus the payment by the assessee can be treated as royalty for use of equipment. The ITO further argued that case has to be distinguished from the case of BSNL and Others Vs. Union of India (Supreme Court). In that case the Supreme Court dealt with the issue of using standard facility provided to an average householder or consumer whereas in the present case it dealt with payment for use of equipment. 6:1. In the report dated 07-09-2007 the Assessing Officer has reiterat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of ACIT Vs. Infosys Technologies Ltd. in ITA Nos. 653 and 969/Bang/2006 dated 17-10-2007 held that any payment made to database owners outside India for accessing such databases and the services provided by such telecom operator to the customers do not amount to technical services or royalty u/s 9(1)(vii) of the IT Act. Accordingly, it was held that no TDS is to be made. The Hon'ble Tribunal also held that payments for accessing data is like reading a book in a library which could not be passed on to anyone else. Since the copyright was not for literary, artistic or scientific work, the payment is not to be treated as royalty and it was held that no TDS was required to be made. The Hon'ble ITAT, Bangalore Bench in the case of ITO Vs. Madhura Coats Pvt. Ltd., in ITA No. 1711 and 1712/Bang/2005 for AYs. 2005-06 and 2006-07 vide order dated 28-09-2006, relying on the decision of the Apex court in the case of Bharat Sanchar Nigam Ltd., (Supra)' wherein, it was held that providing telecom services do not fall under the category of 'goods', the Hon'ble ITAT held that payments made for connectivity for transmission of data would not fall into the catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax (Appeals). 15. In the appellate proceedings, the assessee filed written submissions observed at page 9 and 10 of his order as under:-. a) In so far recruitment expenses are concerned, the Appellant submits that the payment was for business services are liable to be taxed in India in the absence of a P.E. b) The learned AO ought to have appreciated that the AAR ruling in Steffen, Robertson And Kristen consulting Enginess and Scientists Vs CIT 230 ITR 206 relates to a case which involved rendering technical consultancy services. The Learned AD ought to have appreciated the facts of the case referred by him are entirely different from that of the Appellant. The decision he ought to have known related to a resident of a country with which India had no DTAA. c) The learned AO ought to have appreciated the services availed from overseas service providers the provisions of DTAA clearly exclude the same from the purview of tax liability in India. d) The learned AO ought to have appreciated the provisions of section 90 (2), the provision of DTAA or that Indian tax law whichever is more beneficial would apply. e) The learned Assessing Officer erred in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... logy Centre P. Ltd vs. CIT 327 ITR 456 (SC) and also supported that there is no technical know-how, plan and designing for services rendered outside India and reimbursement of expenses are not taxable. 19. We heard the rival submissions, perused the material on record and judicial decisions cited. The ld. Departmental Representative explained that assessee has not proved the nature of expenditure incurred outside India and also no evidence was produced. The ld. Authorised Representative explained that is expenditure in incurred for Branch Office at Australia which do not have permanent establishment in India and such payments are not in the nature of technical services or technical knowledge. We on perusal of the assessment order, found that the ld. Assessing Officer has not discussed on the permanent establishment or the type of expenditure incurred with complete details and the findings of assessment order that the assessee has failed to provide details of TDS and summary of expenditure incurred. We are of the opinion that the matter has to be re-examined to verify to the expenditure and genuineness of permanent establishment and business connection of the assessee. Hence, we r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Appeals) has not attained finality. The ld. Authorised Representative argued on the purpose of issue of ESOP and also the types of expenditure incurred and supported his arguments relying on the Tribunal decision in the case of SSI Ltd (supra). We perused the order of Commissioner of Income Tax (Appeals) and the submissions of both counsels and found that ESOP are in the nature of business expenditure and it takes the characteristic of staff welfare and the shares are issued to the employees to work in the best interest of the assessee. These shares are allotted through SEBI guidelines and expenditure is in the nature of Revenue expenditure and claimed deduction and ld. Authorised Representative supported his arguments with decision of Jurisdictional High Court in the case of CIT vs. PVP Ventures Ltd 90 DTR 340 (Mad) wherein it held that staff welfare expenditure incurred by the assessee in respect of Employees Staff Option Plan as per SEBI guidelines is an ascertained liability and is allowable as expenditure in computation of income. Considering the jurisdictional High Court decision, we uphold the order of Commissioner of Income Tax (Appeals) and allow the expenditure. The gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by us for the assessment year 2006-07 in ITA No.439/Mds/2010 at para 24 and we dismiss the ground of the Revenue. 37. The second ground raised by the Department is with regard to addition of unearned income of ?29,37,55,000/-. 38. We have considered the facts and submissions made by the ld. Authorised Representative and Departmental Representative, similar issue was adjudicated by us for the assessment year 2001-02 in ITA No.435/Mds/2010 at para 8 and we dismiss the ground of the Revenue. 39. The third ground raised by the Revenue with regard to disallowance of depreciation on good will. The assessee has acquired M/s. Globe Travel during the current year and submitted details in assessment and the acquisition cost was capitalized under the block of business assets to the extent of ?11,27,14,945/- and depreciation claimed at 25%. The Assessing Officer issued notice on disallowance of depreciation as intangible asset and the assessee filed explanation on acquisition of M/s. Globe Travel and disclosed block of assets as intangible asset. The ld. Assessing Officer contended that the explanations of the assessee that the total assets were acquired at ?11,62,18,448/- from M/s. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute on the issue was raised by the appellant. In the second case, the issue was whether the compensation paid to the retiring partner can be treated as goodwill. In the appellant's case, however, the Id. AR had strongly contended that goodwill is in the nature of "any other business or commercial rights of similar nature" and hence eligible for depreciation. It is also a fact that the appellant has acquired a new business and it is not a case of any compensation paid for retirement of partners. In the appellant's case, the amount was paid towards domain and customer relationship contracts as part of consideration for acquiring the business. As submitted by the Id. AR, the appellant has bought the business of Globe Travels which had been carrying on the business for more than 12 years. The said Globe Travels had contracts with all major airlines on account of which the business developed by them flowed to the appellant. It is also not in dispute that the appellant had acquired a valuable right for which compensation was paid. Based on these facts, I am of the considered opinion that the appellant had acquired a "business or commercial right of similar nature&q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income Tax (Appeals) ought to have appreciate that M/s. SCL, which has acquired the IP/VPN business is still utilizing the infrastructure facilities of the assessee, while the assessee is claiming that the unit has been sold. 45. The Brief facts of the case is that in the current year the assessee has shown long term capital gains of ?43,64,69,634/- and in the assessment proceedings, it was explained that IP/VPN business was sold on the basis of slump sale for a consideration of ?50 crores and the networth of the business was valued at ?6.6 crores and was in the nature of profit on sale of IP/VPN business as the entire business was transferred under slump sale as per the provisions of Sec.50B and the balance offered as capital gains. The assessee was issued show cause notice to explain the transfer of sale of IP/VPN licence cannot be considered as business income as it is not a sale of undertaking or a unit as a whole as per the provisions of Sec. 50B of the Act. In reply to show cause notice, the assessee made elaborate submissions explaining the nature and time frame and the provision of slump sale were the IP/VPN business were sold referred at para 5 & 6 of the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals). 49. We heard the rival submissions, perused the material on records and judicial decisions cited. The ld. Departmental Representative contention on the aspect of gain on sale to be as business income. We on perusal of order of Commissioner of Income Tax (Appeals) found that the assessee has placed more reliance on the valuation report of Deloitte Haskins & Sells and sold the units to subsidiary company M/s. Sify Communications (SCL) and it was explained that sale consideration is based on future earning capacity and earning before interest and depreciation but not on individual value of assets. Under sec. 2(42C) of the Act, the slump sale is defined as ''sale for lumpsum consideration without assigning any value to he individual assets''. At the time of hearing, the ld. Authorised Representative argued that even if some assets and liabilities are not transferred it will be a slump sale. Prime facie it is not clear whether sale is by a lock, stock and barrel or assigning the value of individual assets. Considering apparent facts, valuation report and decisions, we are of the opinion that the matter has to be reexamined. We remit the disputed issue to the file of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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